The FTSE 100 came close to a fresh four and a half year high as it climbed 18.2 points, or 0.32%, to 5,722.6, but closed well off the day's best level as oil and tobacco shares fell.
But insurance firm Prudential gave the FTSE a boost, climbing 4.16% to 576p, as long-running talk that rival Aviva might be interested in a bid burst back into life after Prudential dropped JPMorgan Cazenove as its broker and appointed Goldman Sachs.
Ports and ferries group P&O also rose 3% to 522p, after agreeing to a $6.4bn takeover bid from Singapore's PSA International, throwing out a previously agreed bid by Gulf state-backed Dubai Ports World.
Cigarette makers Gallaher and Imperial Tobacco dropped, with Gallaher slipping 2.36% to 867p, while Imperial Tobacco fell 2.04% to 1,633p. BAT also lost 1.1% to 1,260p, as concerns of a European price war grew.
Meanwhile, news that Spain's Repsol cut its oil and gas reserves by 25% sent the UK oil majors lower, reminding investors of Shell's 2004 announcement that it had overstated its oil and gas reserves by 20%. BP lost 0.91% to 654.5p, while Royal Dutch Shell slipped 0.33% to 1,835p.
In the US the Dow Jones Industrial Average has gained 91.57 points, or 0.86%, helped by stronger-than-expected earnings from heavy equipment maker Caterpillar and a rise in US orders for long-lasting manufactured goods.
Shares of Caterpillar have added 2.06% to $63.35, after the company said quarterly earnings were boosted by "unprecedented customer demand."
But shares of General Motors have bucked the trend, with a drop of 6.71% to $22.25 so far, after the world's largest carmaker posted a $4.8bn loss for the fourth quarter.
Elsewhere, drug maker Eli Lilly has also reported stronger-than-expected earnings, causing its shares to rise 0.4% to $57.40.IFAonline
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